Insights from PPL Electric Utilities’

Residential Summertime Time of Use Pilot

Background

PPL Electric Utilities (“PPL Electric” or “the Company”) has been and continues to be a strong supporter of market approaches to electricity supply issues. The Company was an early supporter of the deregulation of generation markets and, consistent with that position, PPL Electric believes that a demand side response to market price signals is an important element of a viable competitive generation market. PPL Electric further believes that this can be accomplished within existing jurisdictional structures by having the entities that serve retail load, both Electric Generation Suppliers (EGSs) and default suppliers, offer demand response programs to their end-use customers. The reduction in demand that results from individual customers’ response to price will be seen in the wholesale market as a change in the load servers’ aggregate demand. PPL Electric believes that such programs are a natural extension of EGS’s participation in the market and their need to manage supply risks. Default suppliers, on the other hand, participate in generation markets by obligation rather than choice and must be fully compensated for risks associated with that obligation. Their interest in demand side response is further complicated by generation rate caps, supply arrangements that may have been made as a result of restructuring and distribution rate mechanisms (i.e., caps or the need for a base rate proceeding) that inhibit their ability to recover the cost of any infrastructure (i.e., metering, communications, billing, etc.) required to support demand response programs. PPL Electric also believes that demand response programs can facilitate efforts to promote conservation, energy efficiency, and environmentally responsible energy use (assuming that environmental factors are reflected in prices). Demand response programs also provide important tools to customers seeking to manage their energy costs in a market environment.

PPL Electric’s Residential Time of Use Pilot – 2002 through 2006

In 2002, PPL Electric obtained Commission approval to offer an experimental Demand Side Response Rider – Residential over a three-year period to up to 200 eligible residential customers. This rider provides those customers a rate incentive to shift their load from on-peak periods to off-peak periods during the four summer months. To qualify for this program a customer must have an meter capable of being read remotely (an “Automated Meter Reading” or ”AMR” meter) and use a minimum of 1,000 kwh per month during the May, June, July, and August. As a result of the metering requirement, the only customers eligible in the first year were those included in the AMR project’s test population. About 25 customers participated during July, August, and September of 2002. Approximately three-quarters of the monthly bills rendered to participants during this period were lower as compared to what they would have been charged for standard residential service under Rate Schedule RS. The summertime electric bills for participants were, on average, $3.31 per month below what they would otherwise have been. For those customers whose bills were lower, the average saving was $6.10 per month for the summer period. In aggregate, the participating customers saved about $202 on the generation component of their electric bills. PPL Electric estimates based on actual Locational Marginal Prices that, over the same period, the shifting of load translated into a saving of about $230 to serve those customers compared to the cost to serve a normal residential load profile. While this was a modest beginning, the fact that customers captured benefits from their actions that were nearly equivalent to the value of those benefits in the energy market suggested that this approach had merit. Follow-up customer research determined that participants were generally pleased with the program. PPL Electric spent about $65,000 in 2002 on solicitation and enrollment, programming of necessary billing system changes, customer research, and administration and monitoring.

In 2003, PPL Electric was able to expand the customer base because the AMR project had reached more customers. In 2003, following an extremely positive response to early solicitations, PPL Electric obtained Commission approval to increase the participation limit to 300 eligible customers. About 275 customers participated in 2003 and, again, about three-quarters of the monthly bills rendered to participants during this period were lower as compared to what they would have been charged for standard residential service under Rate Schedule RS. The summertime electric bills for participants were, on average, $2.82 per month below what they would otherwise have been. For those customers whose bills were lower, the average saving was $4.93 per month for the summer period. In aggregate, the participating customers saved about $3,037 on the generation component of their electric bills. PPL Electric estimates based on actual Locational Marginal Prices that, over the same period, the shifting of load translated into a saving of about $2,204 to serve those customers compared to the cost to serve a normal residential load profile. Clearly, the balance between customer savings and avoided costs that existed in 2002 did not exist in 2003 as participants during 2003 achieved benefits from their actions that were significantly greater than the value of those actions in the energy market. PPL Electric’s preliminary analysis indicates that actual off-peak prices were higher in 2003 than in 2002 so that there was less real value associated with the shifting of kWhs in 2003 than in 2002, even though the customer billing values remained about the same (i.e., about 8 cents/kWh on-peak and about 3 cents/kWh off-peak). Again, follow-up customer research found that participants were generally pleased with the program. In 2003, PPL Electric spent an additional $73,000 on solicitation and enrollment, communication with prior year participants, customer research, and administration and monitoring.

In 2004, the Company requested the Commission approve a three year extension of the pilot program to September 30, 2007. That request was granted on December 2, 2004.

PPL Electric has retained the raw data on customer usage and market generation prices for 2002 through 2006, but has not yet completed analyses similar to those described above for 2004, 2005 and 2006. Those analyses are currently underway. Customer survey information was collected and is available for 2002 through 2005. No customer survey was conducted in 2006.

In 2004, PPL Electric did not seek to repopulate the program. As a result, by the end of the summer of 2004, the number of participants had dropped to 217. Preliminary analysis of 2004 indicates that participants had on-peak usage of 21.6%. The Company has not yet analyzed a control group of non-participants for 2004, but, for comparison purposes, the Company’s weather-normal load profile for large residential customers has about 24% of the usage occurring during the period the pilot defines as “on-peak”. On-peak usage by individual customers over the summer months ranged from 36% to 9.1%. Participants saved, on average, only $1.30 during 2004. However, if we look only at the 127 customers who saved we find an average of $14.14 with a range of $78.22 to $0.14. A total of 90 customers actually paid an average of $17.04 more for electricity as a result of their participation with a range of losses from a minimum of $0.40 to a maximum of $98.98.

The Company did solicit additional participants in early 2005 with the result that the total number of participants at the end of the summer of 2005 was 324. Preliminary analysis of 2005 indicates that participants had on-peak usage of 19.6%. As is the case for 2004, the Company has not yet analyzed a control group of non-participants for 2005, but comparison to the 24% figure that represents typical on-peak usage consistent with the Company’s weather-normal load profile for large residential customers suggests that load was shifted. On-peak usage by individual customers over the summer months ranged from 32.2% to 6.5%. Participants saved, on average, only $10.31 during 2005. If we look only at the 242 customers who saved we find an average of $20.64 with a range of $147.44 to $0.02. A total of 101 customers actually paid an average of $13.79 more for electricity as a result of their participation with a range of losses from a minimum of $0.07 to a maximum of $69.63.

With participation slightly over the 300 customer level, the Company had no need to repopulate the program during 2006. At the end of the summer of 2006, there were 284 participants. Also, during 2005 and 2006 the Company provided to participants a web-based calculator that allowed them, if they so desired, to calculate what their electric bill would have been had they not been a pilot participant and, in that way, calculate savings. The Company has collected, but not yet analyzed, “hits” on the program website during 2006.

PPL Electric’s Residential Time of Use Pilot – Future Plans

The Company proposed, during 2006, to extend the termination date of the residential program from 2007 through the end of 2010, to double the limit on participation to 600 customers in 2008 and 2009, and to remove participation limits in 2010. In addition, the Company proposed to expand the residential program from a summertime-only program to a program that is available to customers year-round in 2010, with the inclusion of pricing for those periods not currently included. The Company also proposed that pricing for 2010 be revised to more fully reflect actual competitive market prices. This request is currently pending before the Commission.

Insights

­  There is a significant body of customers who, by their nature, are interested in and actively participate in this program. The program was not marketed or promoted. Solicitations have been by direct mail to eligible customers. The tone of the solicitations is best described as “an informational offering for consideration”. The mailings were one-time, not repeated. There was no media campaign to promote the rate and the mailing did very little to anticipate or address potential sources of customer resistance.

­  Customers have remained interested even though savings have been modest for most customers; i.e., a few dollars a month and less than 10% saving. For a significant number of participants, bill reduction may not be the primary reason for participation.

­  The program only truly reflected market price in 2002 and may have experienced reduced customer interest if prices in subsequent years reflected the declining differential between on-peak to off-peak. Conversely, the fixed 5 cent differential resulted in a net cost to PPL Electric. If energy costs were reconciled, then non-participants would end up subsidizing participants.

­  Participants very strongly expressed a desire to know their actual hourly use and some measure of whether they were saving or not.

­  The fixed noon to 7 PM on-peak period was a disincentive to some customers. The opportunity for a customer to select a different period would likely increase participation; although, to be economically correct, different on-peak/off-peak periods should have different prices and will have different differentials which could affect participation.

­  The program brochure has been praised as a model.

Doug Krall

PPL Electric Utilities

January 9, 2007